Land Market Hasnt Slowed down

[jflournoy]

This site is a good one to follow that keeps up with all of the (mostly) farmland auctions that are happening all over Iowa. https://twitter.com/theLandTalker

Usually posts results within a day or two of the auction. Regularly shows eye-popping numbers. I'm not a farmer, and these numbers blow me away on a regular basis. I guess I sure don't understand the economics of farming to a degree where I can make sense of someone paying $20-$25k/acre for farm ground, even 85-90 csr2 level stuff. Maybe it's like someone else mentioned, some farmers are just so flush with cash right now they don't have anything else to spend the money on but more tillable acres.

 

[Sligh1]

When things “dip” in land, IMO - it always takes 6+ months to reflect in prices. It’s last 6 months the rates have sky rocketed up with yesterday bringing another .5% rate increase. I think we in the slowing phase now. I think it’s going to get more noticeable with each day & each further rate increase. The time farms are on the market has absolutely increased substantially the last 90 days. I will promise u will see more “price reduced” & farms that sit sit sit on the market. Not the high end tillable but mediocre ground - it’s slowing. We are in the slowing IMO as we speak. We past the bell-curve of high prices recently & we are on the right/downward side of the curve IMO. The big question: on the right side of that Bell-Curve, does it lean down gradually or steeply & how long does the decline last? Eventually it will come back out of a decline but I personally think it’s going deeper in the next 12 months or so. If a guy can buy something in next 12 months where prices really did decline & they Comfy to do it- probably good long term value buys and “land on sale” to some degree coming up. How “on sale” it gets- no one knows. I’m 91.927282% sure the discounts & softening is here and coming though. Just my 2 cents, maybe I’m way off.
On other side of it- lot of times I thought things were gonna slow or crash and they didn’t. Covid but then 40% more $ gets thrown in market & it shot up. Crazy.

 

[Sligh1]

This site is a good one to follow that keeps up with all of the (mostly) farmland auctions that are happening all over Iowa. https://twitter.com/theLandTalker

Usually posts results within a day or two of the auction. Regularly shows eye-popping numbers. I'm not a farmer, and these numbers blow me away on a regular basis. I guess I sure don't understand the economics of farming to a degree where I can make sense of someone paying $20-$25k/acre for farm ground, even 85-90 csr2 level stuff. Maybe it's like someone else mentioned, some farmers are just so flush with cash right now they don't have anything else to spend the money on but more tillable acres.

That flush of cash by definition (stock piles) is probably 12 months from being depleted. The PPP $ will burn up in less than 6 months based on inflation & tendencies of people to “blow it all” & there isn’t a new shot in arm coming. This farm season had vastly lower yields vs ‘21 which did create huge stock piles of $. That $ won’t last forever or enough of those people will go through it to slow it down. As inputs chase profits, cash rent is obscene & folks blow $ - only the top tier will still be setting on piles of $. Human nature spends $. This will slow. I have zero doubt in my mind IMO. If we see corn retreat to $5’s - that’s gonna be a double whammy gut punch. Lots of piles of cash in certain areas TODAY but I assure u- that will not last!!!!!
Agree no one knows the future for sure but we sure know rates, inputs, inflation are rising. One of those components: inflation - is a good thing for land prices. The other 2 are not. Recession also looks very likely.

 

[Daver]

This article was in the local paper: Will Iowa farmland prices fall?

FWIW, from the article..."Iowa farmers and outside investors own about four out of every five acres without debt, meaning most buyers in the space don't need to worry about federal monetary policy."

Yowsa, I knew land was being purchased with cash on the regular these days, but I would not have guessed that roughly 80% of it is free and clear. The rapid increase in land values may taper off, but if people straight up own it, then the chances and/or impact of a "crash" are quite muted, IMO. Slower increases do not equal "crash", or really anything like that.

Also from the article..."Bruere said his company began receiving calls from new groups of investors amid the COVID-19 pandemic, a trend that he said has not stopped."

In addition to farmers doing very well with higher grain prices...most(all?) of them got a nice PPP check, read "wad of free cash", in the last 18 months. Back to something I wrote earlier...if you are already pretty much paid off and bought up on stuff...what do you do with cash, assuming that you would like to avoid the tax man, that is? Well...you "overpay" for what they aren't making any more of, land. What else is there?

 

[jflournoy]

When things “dip” in land, IMO - it always takes 6+ months to reflect in prices. It’s last 6 months the rates have sky rocketed up with yesterday bringing another .5% rate increase. I think we in the slowing phase now. I think it’s going to get more noticeable with each day & each further rate increase. The time farms are on the market has absolutely increased substantially the last 90 days. I will promise u will see more “price reduced” & farms that sit sit sit on the market. Not the high end tillable but mediocre ground - it’s slowing. We are in the slowing IMO as we speak. We past the bell-curve of high prices recently & we are on the right/downward side of the curve IMO. The big question: on the right side of that Bell-Curve, does it lean down gradually or steeply & how long does the decline last? Eventually it will come back out of a decline but I personally think it’s going deeper in the next 12 months or so. If a guy can buy something in next 12 months where prices really did decline & they Comfy to do it- probably good long term value buys and “land on sale” to some degree coming up. How “on sale” it gets- no one knows. I’m 99.9999% sure the discounts & softening is here and coming though. Just my 2 cents.

Crazy thing is, even if prices come back by 10%, prices will still be higher than they were less than 2 years ago.

Part of the delay in prices coming back is going to be the time it takes for landowners/sellers to get their thinking in line with reality on the actual market value of their ground. Landowners almost always think their ground is worth more than the market says it is, and many realtors are happy to list it at any price in order to get the listing. Up until late Spring of this year, because of the irrationality of the market, extreme demand, and cheap money to borrow, in some cases they would even get those crazy high prices from a buyer. But that time is mostly over now, and has been for months (I'm talking rec/hunting ground, not high quality tillable). Lots of ground sitting right now because it is simply priced too high. Too high for right now, and too high even for when prices and demand were at their peak in late 2021/early 2022. And with money no longer being so cheap to borrow, there's a lot less stomach in buyers for spending their *own* money on stuff that is priced crazy high. Lot of sellers who have land listed at unrealistic prices right now are either going to end up not selling their place or they're going to sell at a number that doesn't make them that happy. It's all about expectations. Most landowners have unrealistic expectations going in, and a lot of realtors unfortunately aren't willing to burst that bubble and help them get in line with more realistic expectations of what similar ground is actually selling for.

 

[northcedar]

"meaning most buyers in the space don't need to worry about federal monetary policy."

With all due respect, I find that line and sentiment absolutely ludicrous.

I agree it might appear farmers are overpaying, but that doesn't inherently mean they aren't financing. A sizeable downpayment followed by cheap money loans is probably the most common sale that happened the past few years. Interest is a deduction. Input bills are huge in case anyone forgot about bills. I don't know anyone paying cash on 600k tractors or million dollar combines/heads either. It's not all gravy.

Again, I know IA is special and that a lot of livestock operations are the winning bidders on these 20-30K sales.

 

[jflournoy]

"meaning most buyers in the space don't need to worry about federal monetary policy."

With all due respect, I find that line and sentiment absolutely ludicrous.

I agree it might appear farmers are overpaying, but that doesn't inherently mean they aren't financing. A sizeable downpayment followed by cheap money loans is probably the most common sale that happened the past few years. Interest is a deduction. Input bills are huge in case anyone forgot about bills. I don't know anyone paying cash on 600k tractors or million dollar combines/heads either. It's not all gravy.

Again, I know IA is special and that a lot of livestock operations are the winning bidders on these 20-30K sales.

I don't know the ratio of down payment to loan amount on a lot of these auction purchases, but money hasn't been cheap to borrow for a number of months now and these very high auction prices for high quality tillable ground are still happening at breakneck speed right now. Caveat: I am not a farmer and am not in finance, but I do follow land sales closely.

See for examples: https://twitter.com/theLandTalker

$15k/acre seems to be about the average very recently, but some are definitely going for higher than that, in some cases much higher.

 

[northcedar]

Point noted, but 7% probably still sounds cheap to the guys who lived through the 18-20%

 

[deerdown]

"Most landowners have unrealistic expectations going in, and a lot of realtors unfortunately aren't willing to burst that bubble and help them get in line with more realistic expectations of what similar ground is actually selling for."

Realtors play the game of "I can get you $$$$ for your ground" to get the listing, then get the landowner to negotiate down when it doesn't sell. I agree most landowners have pie in the sky expectations, but the market hasn't proven them wrong in many cases, even today.

While 7% sounds cheap compared to 80's, we haven't been in that environment for long, long time, and it still adds up if you're financing, especially when land prices are as high as they are. 7% on $1000/acre is a lot different than 7% on $15k/acre.

Also, some investors, myself included look at some of this ground showing a return of 2 - 2.5% and say to themselves...I can buy Treasuries or Corporate bonds and be money ahead on those dollars... sure, I don't get the land appreciation, but the question is are land prices going to come down, or go up in the next 2 or 3 years? Grain prices can impact that quite quickly, although I hear grain prices are supposed to be strong through at least 2024...

Fun little exercise of the brain I go through just about every day...

 

[Sligh1]

I posted below this fall but worth posting again. Screen shot & link at bottom. It’s a myth that “most land is paid for”. Or “unlike the 80’s - land is far more debt free”. Debt is close to 1980’s levels. See chart.

I could play the part of “land expert” on BOTH SIDES of the debate to value of land…. I’m very skeptical of “experts” as they usually have a motive for or against something. I’m gonna say MOST “experts” will always try to tout a minimized risk when there could be great risk. For example- stock advisors rarely will say “sell sell sell!! Market is gonna go down”. They say “hold”. They always find things to buy. Which of course, that’s their business. But few experts want to say “hold off. Sell. Don’t buy”. When sometimes that’s the right answer & many know it.

For the record - I’d advocate buying land for those who are able and I do think deals are coming.
I could play both sides though!!!!

FOR: inflation is rising. Commodities rise with inflation. Land is more stable than other assets, especially in inflationary times. Rates will probably come back down when we do have a recession. Land may have dips but the long term trend is always up with enough time or even reasonable timing of any natural market cycles. We know rates are still going UP so why not lock in now vs months ahead when they are higher?

AGAINST: short term, values are heading lower. So why not wait 6-12 months? Folks leveraging hard at 8%++ are at great risk, especially in a “short term” declining market. Wait until recession is full bore (which I think is going to happen) & buy at that point right when rates are lowered due to recession…. If you time it right - when/if rates lower- land market will start to rise in value. So- at least wait a bit. Rates, inflation, inputs, AG profit margins & recession all point to a lower land market.

REALITY: who knows ?!?! Buy if you are able and find the right farm. If u can weather a storm - be just fine. Which is always the case. Long term - anyone will likely be fine if not forced to sell. Don’t sit on side lines & be the guy “10 years later”…. “Still waiting for it to fall more”. Those guys always lose. Personal choice but be very informed, have safety nets and be ready for the storm. Buy the the right farm when u find it IMO. That farm is likely going to be a bit cheaper coming up though.
Last reality- don’t think there isn’t massive amounts of people who haven’t lost it all or taken huge hits on land (usually due to debt which is very real). Forced to sell in down market - always has been & always will be folks that get killed in land. Happened 80’s. Happened early 2000’s. Happened after 2008. Happened after 2015. This cycle of folks overpaying & getting killed never stops. Always a % that get in trouble. Always has been and always will be like that!!

USDA ERS - Assets, Debt, and Wealth

The farm business balance sheet reports estimates of the current market value of farm business sector assets, debt, and equity as of December 31 of a given year. It is called a "balance sheet" because of the accounting relationship: assets – debt = farm equity. Farmers and ranchers...

www.ers.usda.gov

 

[deerdown]

This site is a good one to follow that keeps up with all of the (mostly) farmland auctions that are happening all over Iowa. https://twitter.com/theLandTalker

Usually posts results within a day or two of the auction. Regularly shows eye-popping numbers. I'm not a farmer, and these numbers blow me away on a regular basis. I guess I sure don't understand the economics of farming to a degree where I can make sense of someone paying $20-$25k/acre for farm ground, even 85-90 csr2 level stuff. Maybe it's like someone else mentioned, some farmers are just so flush with cash right now they don't have anything else to spend the money on but more tillable acres.

Did you see some of those cash rents?
LEASED! $114,651 or $475/acre; 3- year term; 100% of rent due March 1st; CSR2- 49.6.

 

[Sligh1]

Did you see some of those cash rents?
LEASED! $114,651 or $475/acre; 3- year term; 100% of rent due March 1st; CSR2- 49.6.

The world is upside down!!!!!!! INSANE!!! Same crap happened in 2012-2013 & it took out a ton of farmers I knew!!! These dudes are absolutely bananas and if they do put proper P&K levels down- they are playing with fire & very likely will take a loss several of those years - especially drought years on 49 csr dirt!!! I combined within 20 miles of there this year best corn yield on far better dirt was 170. Dirt like that yielded 100-115 on corn & 20-40 on beans depending on few factors. If don’t think that could happen again on 49 csr over 5 years - u nuts. Or a corn/bean price drop in 5 years….. people are crazy!!!!!

Run math… $400 input on corn. + $475 cash rent. $875 (plus Harvest & trucking I’ll leave out). This year- 110 bushel x 7 = $770 gross total. If it hits the county average which is probably 140, let’s say 150 even: $1050 gross.
Now- run those same #’s & change it based on corn dropping to $5/bushel or inputs increasing by 10-20%. These dudes either don’t care if lose & or making a huge gamble. This is definition of foolish: paying $300 per acre OVER COUNTY AVERAGE RENTAL RATES!!!

 

[Slick]

https://www.extension.iastate.edu/agdm/wholefarm/pdf/c2-70.pdf

 

[newfarmer]

The world is upside down!!!!!!! INSANE!!! Same crap happened in 2012-2013 & it took out a ton of farmers I knew!!! These dudes are absolutely bananas and if they do put proper P&K levels down- they are playing with fire & very likely will take a loss several of those years - especially drought years on 49 csr dirt!!! I combined within 20 miles of there this year best corn yield on far better dirt was 170. Dirt like that yielded 100-115 on corn & 20-40 on beans depending on few factors. If don’t think that could happen again on 49 csr over 5 years - u nuts. Or a corn/bean price drop in 5 years….. people are crazy!!!!!

Run math… $400 input on corn. + $475 cash rent. $875 (plus Harvest & trucking I’ll leave out). This year- 110 bushel x 7 = $770 gross total. If it hits the county average which is probably 140, let’s say 150 even: $1050 gross.
Now- run those same #’s & change it based on corn dropping to $5/bushel or inputs increasing by 10-20%. These dudes either don’t care if lose & or making a huge gamble. This is definition of foolish: paying $300 per acre OVER COUNTY AVERAGE RENTAL RATES!!!

I’d say I’m in far better farm country- we had beans hitting 100/acre and corn 300/acre consistently. I never ran average over the farms I help on just remember some of the better fields. We never ran into anything under 60/beans and 220/corn. So up here farm ground brings high money- and the first 190+ was shot in the county last week, first one in pry 20 years (so not big deer country by any means).

 

[Muskrat24]

The world is upside down!!!!!!! INSANE!!! Same crap happened in 2012-2013 & it took out a ton of farmers I knew!!! These dudes are absolutely bananas and if they do put proper P&K levels down- they are playing with fire & very likely will take a loss several of those years - especially drought years on 49 csr dirt!!! I combined within 20 miles of there this year best corn yield on far better dirt was 170. Dirt like that yielded 100-115 on corn & 20-40 on beans depending on few factors. If don’t think that could happen again on 49 csr over 5 years - u nuts. Or a corn/bean price drop in 5 years….. people are crazy!!!!!

Run math… $400 input on corn. + $475 cash rent. $875 (plus Harvest & trucking I’ll leave out). This year- 110 bushel x 7 = $770 gross total. If it hits the county average which is probably 140, let’s say 150 even: $1050 gross.
Now- run those same #’s & change it based on corn dropping to $5/bushel or inputs increasing by 10-20%. These dudes either don’t care if lose & or making a huge gamble. This is definition of foolish: paying $300 per acre OVER COUNTY AVERAGE RENTAL RATES!!!

Guys your math is off. What you forget about is federally subsidized crop insurance with guarantees this year. Above $770/ac. I’m a lender and the cash is there to prop this thing up for AWHILE. Skip is right to some degree but PROFITS per acre were $300 to $500/ acre the last 2-3 years. And that is after land cost so for someone that owns their land outright add $200 to $300 per acre. One older well established farmer say owns 1500 acres with $400/acre profit you do the math. Part I don’t understand as a lender is how these producers paying cash don’t pay much in taxes!! The cash is there.

 

[newfarmer]

I’d say I’m in far better farm country- we had beans hitting 100/acre and corn 300/acre consistently. I never ran average over the farms I help on just remember some of the better fields. We never ran into anything under 60/beans and 220/corn. So up here farm ground brings high money- and the first 190+ was shot in the county last week, first one in pry 20 years (so not big deer country by any means).

I should say bushels/acre to clarify. Typing on my phone is challenging sometimes

 

[Sligh1]

Guys your math is off. What you forget about is federally subsidized crop insurance with guarantees this year. Above $770/ac. I’m a lender and the cash is there to prop this thing up for AWHILE. Skip is right to some degree but PROFITS per acre were $300 to $500/ acre the last 2-3 years. And that is after land cost so for someone that owns their land outright add $200 to $300 per acre. One older well established farmer say owns 1500 acres with $400/acre profit you do the math. Part I don’t understand as a lender is how these producers paying cash don’t pay much in taxes!! The cash is there.

Good to know.
Now I’ve gotten crop insurance in past (which automatically is subsidized). I only used it when I had a bad year. Very basically speaking - how does it work where it guarantees high profits? Very good to know and I’m far from an insurance expert here. Thx for clarifying!!!

I’d say I’m in far better farm country- we had beans hitting 100/acre and corn 300/acre consistently. I never ran average over the farms I help on just remember some of the better fields. We never ran into anything under 60/beans and 220/corn. So up here farm ground brings high money- and the first 190+ was shot in the county last week, first one in pry 20 years (so not big deer country by any means).

That’s insane!!!! Crazy!!!! U must be around grundy county?!?!
I was up in Sioux county for harvest this year - which is generally some of highest yields - maybe just under grundy ….. 40-50 on beans & 150 on corn. I’m sure some guys will say more but it was way down!!! Several farms were down 100 bushel on corn vs 2021.

 

[Nrharris]

Benton county here. Our corn was 250 to 270. Beans were 70 to 75. The corn could have been better. Tar spot came in late and robbed the top. We even sprayed fungicide but I am convinced tar spot cost us 15 to 20 bpa.

 

[northcedar]

Every area is different, but in my home county (Lasalle, which is one of the top grain producers in IL) my guess is you could count on one hand the amount of single landowners approaching 1500 acres of tillable farmland, could possibly be zero. A few families are probably in the 2-3000 acre range of family owned land, but that's multiple farmers and generations in one operation. To write a check for a 160 that sells for 18k, you need nearly 3 million in AFTER tax money. I just don't see it. I think sometimes you see the Florida connection factor in, the rich 90 year old grandma who lives in Naples helping with the bankroll. My theory anyway...

 

[Muskrat24]

Good to know.
Now I’ve gotten crop insurance in past (which automatically is subsidized). I only used it when I had a bad year. Very basically speaking - how does it work where it guarantees high profits? Very good to know and I’m far from an insurance expert here. Thx for clarifying!!!


That’s insane!!!! Crazy!!!! U must be around grundy county?!?!
I was up in Sioux county for harvest this year - which is generally some of highest yields - maybe just under grundy ….. 40-50 on beans & 150 on corn. I’m sure some guys will say more but it was way down!!! Several farms were down 100 bushel on corn vs 2021.

Relatively speaking we have saw above average yields for past three years. Crop insurance is based on up to 10 years of actual yields for an average yield at established spring and fall CBOT prices and then times a % percentage of coverage. So 170 yield at spring price of $5.90 at 80% coverage = $852.55 so anything under 136 yield would trigger crop insurance payment. VERY basic explanation!